Committee Members traveled to Canada to meet with government officials and private sector organizations on matters related to U.S. agriculture trade. The United States shares the goals of open and fair trade and the reduction of barriers to world-wide agriculture trade. The issues discussed included the North American Free Trade Agreement (NAFTA); Live Cattle; Wheat and Barley; Potatoes; Dairy, Poultry, and Eggs; Sugar; the Helms/Burton Act; and Karnal bunt fungus and restrictions on the St. Lawrence Seaway.

Canada is the largest trading and investment partner of the United States.

Canada produces wheat, livestock and meat, feed grains, oil seeds, dairy products, fruits, vegetables. Total FY96 agricultural exports to the United States are $6.4 billion, representing a 20% increase, led by live animals and red meat. In FY96, the US exported $6 billion worth of agricultural goods with snack foods, processed fruits and vegetables, and fruit and vegetable juices dominating the trade.

Members of the Delegation met with Prime Minister Chretien and other government officials to discuss agricultural trade issues between the United States and Canada. Since 1989, the Canadian Free Trade Agreement, and later the North American Free Trade Agreement (NAFTA) have taken center stage in U.S.-Canada trade relations. Concurrently, both the United States and Canada have been re-evaluating their respective farm policies and programs. In Canada, program costs will be reduced considerably by the year 1998. Part of the downsizing is the Canadian government's decision to eliminate the traditional transportation (rail) subsidy which allowed the Prairie Provinces to move wheat for export. This could have profound long-term implications for U.S. producers.

Many Canadian producers have found it cheaper to move their grain south into U.S. markets.

In the meeting with Prime Minister Chretien, Members cited the many positive relationships between the two countries on matters related to agriculture as well as international issues.

Members met with Canadian government officials and discussed issues related to

bilateral agricultural trade issues, including restrictions on transshipment of U.S. durum wheat through St. Lawrence Seaway facilities. Members urged prompt removal of the restrictions, which was achieved soon after the meeting. (Included is a press release regarding St. Lawrence Seaway). Canadian officials expressed interest in U.S. position on reauthorizing fast-track authority for trade negotiations. Canadians said it is important to have U.S. continue as world traders and they expressed hope that fast track is approved.

MEETING FOLLOWING THE COMMITTEE ON AGRICULTURE'S TRIP TO CANADA

Chairman Smith and Ranking Member Stenholm met in Washington, D.C. on April 16, 1997, with Canada's Deputy Minister of Agriculture, Frank Claydon on a number of agricultural trade issues, including the Northwest Pilot Project (feeder cattle), problems Canada has had moving wheat to ports, and swine pseudorabies.

CANADA/Briefings/Meetings

Ottawa, Canada

March 22,1997 - March 25, 1997

U.S. Charge D' Affairs Thomas Weston,

Jean Chretien, Prime Minister

Arthur C. Eggleton, Minister for International Trade

Lyle Vanclief, Chairman, House Standing Committee on Agriculture and Agri-Food

Dr. Yvan Hardy, Assistant Deputy Minister of Natural Resources

Lloyd Axworthy, Minister of Foreign Affairs

Frank Claydon, Deputy Minister of Agriculture and Agri-Food

Major Issues Discussed

The Canadians are unwilling to engage in meaningful discussions on

issues such as the legitimacy of state trading enterprises (STEs) and the reduction of tariff rate quotas, until the next round of the World Trade Organization (WTO) negotiations on agriculture, which begin in 1999. However, they are willing to discuss sanitary and phytosanitary issues such as the implementation of the Northwest Pilot Project to facilitate the entry of U.S. feeder cattle into Canada.

Wheat & Barley

U.S. imports of Canadian Wheat & Barley: Members strongly urged the Canadians to limit their exports of wheat and barley to the U.S., which have increased considerably in recent months. Canadians reject the notion of a cap on Canadian wheat exports to the U.S., but predicted that exports would likely remain at a level slightly above the cap set by the 1994 U.S.-Canada Memorandum of Understanding on Grains, which expired in 1995.

Wheat embargo: An issue that was still very much in contention prior to the visit by Members of the Committee was the presence of Karnal bunt in U.S. wheat and Canada's restrictions prohibiting the transshipment of U.S. durum wheat through St. Lawrence Seaway facilities. The Delegation strongly urged the lifting of the restrictions and, prior to the Delegation's departure, Canada rescinded this restriction.

Use of Export Enhancement Program (EEP): The Canadians expressed concern about the United States activating the EEP program. Government officials across Canada said that if the U.S. uses EEP, it will cause distortion in the market. The Members stressed that if EEP is used, it will be directed at the European Union (EU).

Potatoes

Restrictions on U.S. Potatoes: U.S. potato growers and processors are concerned about increased imports of fresh potatoes and processed potato products from Canada. Canadian potato processors, such as McCain Foods Ltd., have seized a bigger share of the American french-fry market by exporting frozen fries into the U.S. at bargain prices - prices Americans could not match. U.S. growers and processors believe these imports are a result of the Canadian government's policies and industry pricing practices. There is concern that the Canadian government is subsidizing new processing plants and irrigation, and that potato products entering the U.S. are priced below the cost of production. Accordingly, USTR requested an International Trade Commission (ITC) investigation (Section 332), which convened in April. During talks in Ottawa, Canadians urged that the U.S. or Members of Congress wait until the results of the investigation are reported (no later than July 15, 1997).

Canadian processing conglomerate: McCain's recent purchase of Ore-Ida Foods from H. J. Heinz may allow the Canadian french-fry giant to increase sales to the Pacific Rim. The Ore-Ida sale would transfer ownership of two large Ore-Ida french-fry plants in the Northwest, one in Burley, Idaho, and one in Ontario, Oregon.

Cattle

U.S.-Canada cattle trade: U.S. feeder cattle entry into Canada has been a problem while Canadian imports to the U.S. have escalated. The Delegation emphasized the importance to the U.S. of facilitating entry into Canada. Officials from the U.S. and Canada are working together on a project known as the Northwest Pilot Project (Project), which will streamline export and import operational procedures between the two countries by waiving testing and vaccination requirements for disease-free cattle. Delegation Members stressed the importance of the Project and urged Canadian Federal and Provincial officials to quickly resolve jurisdictional issues precluding its completion. Since the meeting in Canada and a subsequent meeting in Washington, D.C. with Deputy Minister of Agriculture Frank Claydon, the Canadians report that they hope to expedite approval of changes to their Health of Animals Act to facilitate the Project. Minister of Agriculture Goodale must approve these changes, which are now complete, and they will then be published for public review and comment in The Gazette (similar to Federal Register). Canadian and U.S. Embassy officials indicate that this publication should occur shortly in an effort to complete final rules by October 1, 1997.

The Canadians reminded the U.S. Delegation that Montana must complete changes in their state regulations concerning mandatory brucellosis vaccination for imported animals before the Project can begin. Montana's legislature recently passed a law, which Governor Mark Racicot signed, that allows its Department of Livestock to make rules to accommodate the Project. Oregon's Department of Agriculture is considering similar rules changes to allow for easy importation of disease-free Canadian cattle, and if completed, would presumably be eligible to export the same to Canada. Idaho's legislature failed last session to make necessary rules changes to participate in the Project, and Idaho cattle representatives indicate they will not attempt to participate in the immediate future. North Dakota's cattle industry has elected not to participate in the Project.

The Delegation continues to work with Canada's Department of Agriculture and Agri-Food, the Canadian Cattlemen's Association, the U.S. Embassy in Ottawa, and the National Cattlemen's Beef Association to clear outstanding bureaucratic hurdles and pursue completion of this program, one that is beneficial to both the U.S. and Canada, by October 1, 1997.

Live Hogs

The issue of a 30-day quarantine by Canada on all live hogs from the U.S. was discussed. The Canadians stressed the problem of pseudorabies in some U.S. live hogs. The Delegation urged prompt implementation of NAFTA provisions requiring that sanitary and phytosanitary restrictions be evaluated on a regional basis.

Sugar Containing Products

Canadian officials raised the issue of the U.S. sugar-containing product re-export program. Canada asserts that the program violates Article 303 of NAFTA which requires the elimination of duty drawback and duty reductions or waivers granted on condition of export of the imported product. The U.S. disagrees and believes that the re-export program puts US manufacturers of sugar-containing products on a level playing filed with Canadian manufacturers.

Excessive Tariff-Rate Quotas (TRQ)

Canadians are imposing excessively high tariff rates on American dairy, poultry and eggs and the issue was raised by the Delegation. Members stressed that the U.S. is seeking greater access to the Canadian market, consistent with the objectives of NAFTA, and looks forward to discussing tariff reductions for dairy, poultry, and eggs in the next round of agriculture talks.

Winnipeg, Canada

March 25, 1997 - March 26, 1997

James Downey, Deputy Premier, Manitoba Province

Richard H. Klassen, Commissioner, Canadian Wheat Board

Major issues discussed

----Members appreciated having the opportunity to spend time with a Commissioner of the Canadian Wheat Board and various staff for a detailed overview on the history and current status of the Canadian Wheat Board. Coincidentally, the Members were in Canada when the results of the federal plebiscite of Canadian barley farmers was announced . This announcement was made in Ottawa the day before the meeting in Winnipeg with the Canadian Wheat Board. About 63 percent of barley producers voted to keep the Canadian Wheat Board's monopoly over export sales of barley versus the 37 percent who voted to scrap the board outright (as it applies to barley).

----Canadian Wheat Board officials explained the Board's acquisition and marketing practices. They stressed that the purpose of the Board is to maximize producer prices. They cited Canada's small population, spread over great distances, as a major impetus for the creation of the Board. Board officials explained that the Canadian system depends heavily on storage facilities located on farms. While the U.S. produces roughly nine times the amount of grain products that Canada does, it has 26 times the amount of commercial storage facilities. Members responded that the Canadian Wheat Board's pricing policies are not transparent and explained the negative impact of such state trading enterprises have on world trade, especially U.S. agricultural trade.

----The Members were briefed in detail on what the elimination of the Canadian transportation subsidies would have on long-term agricultural policies in the Prairie Provinces.

Vancouver, Canada

March 26, 1997 - March 28 1997

Jay Bruns, U.S. Consulate, Vancouver, British Columbia

Mike Apsey, Council of Forest Industries

Ike Barber, Slocan Forest Products

Hartley Lewis, British Columbia Ministry of Forestry

Lois McNab, British Columbia Ministry of Forestry

Peter Bentley, Canfor

Gordon Steele, Riverside Forest Products

Major Issues Discussed

Forestry

U.S.-Canada Softwood Lumber Agreement: Members reviewed the implementation and effectiveness of the Agreement on the eve of its one-year anniversary. Concerns on both sides of the border remain; however, there is consensus that the certainty the Agreement provides is preferable to no agreement. Members asserted that a comprehensive, competitive stumpage system in Canada would eliminate the need for the Agreement, because it would ensure that stumpage is sold at market value rather than a predetermined set price. "Stumpage" is the price of standing timber (trees), as opposed to "logs" (trees severed from the stump) or "lumber" (manufactured wood).

Wood Pellets: Members questioned Council of Forest Industries (COFI) representatives about the dumping of cheaper Canadian wood pellets onto the American market making it difficult for American companies to compete. Members inquired as to whether Canada's lack of a competitive stumpage system is also affecting the wood pellet market as well. COFI representatives maintained that there is virtually no difference between American and Canadian stumpage prices, and that therefore, there should be no competitive advantage for Canada.

Wood Chips: Members related the concern of U.S. pulp manufacturers that Canada is restricting the purchase of its wood chips through a permit system, which requires permits to be issued by the Canadian government. Alternatively, Canadian companies currently purchase U.S. wood chips without restriction. COFI representatives responded that the issuance of permits is strictly a courtesy, and in no way limits the purchase of Canadian wood chips by U.S. manufacturers.

Forest Practices: The group discussed forestry regulations in their respective countries. British Columbia's Forest Practice Code became effective in the Fall of 1994 and established standards for forest activities such as recreation, silviculture, road and bridge construction, timber harvesting and operational planning. The Code established reserves that protect between 9 and 12 percent of the total forest land base in British Columbia. Although U.S. forest practices on public and private ownerships vary, they have been regulated for much longer with more stringent standards than Canada. Of the 737 million acres of forested land in the U.S., 244 million acres are protected from logging and other commercial development in wilderness areas and preserves.